1985 PLP 192 (PTD)

MUHAMMAD ZAHOORUL HAQ, J.‑‑ In this application applicant Messrs Shamsi Industries Limited, Karachi, have submitted the following question for consideration:‑ "Whether in the facts and circumstances of the case the computation of Export Rebate made by the Assessing Officer, confirmed by the, Appellate Tribunal, was in accordance with ‑ law and correct?" The relevant facts are that the applicant is a manufacturer. Admitted position is that the export sales, of the applicant were more than 50$ of the total sales. The Income‑tax Officer had for assessment year 1971‑72 deducted the loss of Rs.34,538 which was brought forward from the previous year from the profits and the export rebate was allowed after such deduction on the final total income assessed at Rs.31,210 for assessment year 1971‑72.

2. The applicant's submission was that he was to be allowed a rebate on 30$ of the income attributable to export sales because his case was covered by Item B of para. 2 of subsection (4)(a) of section 9 of Finance Ordinance, 1970 which provided as under:‑ "(4) In making any assessment for the year beginning on the first day of July, 1971, where the total income of an assessee, not being a company to which the proviso to sub‑paragraph (1) of paragraph A of Part II of the Third Schedule does not apply, includes any profits and gains derived from the export of goods out of Pakistan, income‑tax and super‑tax, if any, payable by him in respect of such profits and gains shall, subject to the provisions of clauses (b) and (c) be reduced by an amount computed in the manner specified hereunder:‑ (i) (Not relevant) (ii) Where the goods exported had been manufactured by assessee who had exported them. (a), (b), (c) ..................... (d) where the 'export sales exceed 30 per cent of the total sales .... 25 per cent of the income‑tax, if any, attributable to export sales.",

3. The submission is that the income‑tax and super‑tax should first be computed in a manner that the tax attributable to export sales should first be arrived at, irrespective of the previous years losses. And then 25$ of such tax should be calculated for the purposes of export rebate and the export rebate should be deducted from the tax. attributable to export sales and the result arrived at. Thereafter the total income of the applicant from other sources should be assessed and the previous years loss should be set off against that income, and tax attributable from these other sales should be determined and the same should be added to the 'rebated tax attributable to export sales and then the final figure of tax is reached. The counsel emphasised that the provision of rebate on export was a beneficial one and was introduced to provide encouragement for exports and, therefore, it should be considered in a manner that the benefits of the exports is really enjoyed by the assessee irrespective of the previous years losses. He submitted that the previous years losses should be set off against income from other items of business and not against the income from export sales. Export sales should not be mixed upto with other sales otherwise the benefit of export rebate would be totally lost.

4. We had requested Mr. Iqbal Naim Pasha to act as Amicus Curiae in this matter. He. has drawn our attention to the Circular issued by the C.B.R. on 15‑11‑1963 as published in 8 Taxation (1963) page 184 (195). The following example has been given in order to arrive at the method of calculation of tax rebate on export. Such rebate was first introduced in 1963 and at that time maximum rebate was only 20% and, therefore, the example shows calculation at 20%. "The following example will illustrate the method of calculation of tax rebate on exports:‑‑ Example I‑‑(not relevant). Example II‑‑ As assessee, exports goods manufactured by him.. (1) (Not relevant). (2) Total sales. Rs.10,00,000 Export sales (excluding the value of export bonus licence). Rs.5,00,000 Rebate on export sales = 20 x 5,00,000 x tax payable by 100 10,00,000 the assessee in respect of the total sales." Mr. Iqbal submitted that the example showed that the department has interpreted the provision of export rebate in the manner that the rebate in respect of export sales is to be determined in a manner that‑ the tax payable by the assessee in respect of the total export sales has to be first calculated and computed and. then the total income has to be arrived at.

5. Mrs. Rashida Patel, argued that the rebate on export sale can be allowed only if there is some income which is to be assessed as the export, has been linked with the tax payable on the total sales including the export sales. Therefore, the total income is to be first computed and it is only then that total tax payable can be reached. Thereafter, the tax attributable to export sales be calculated in accordance with 'the example given on p.195 of (1963) 8 Taxation, Statues Section. She emphasised that tax payable is not capable of being determined without first computing the income and in its turn income can be computed in accordance with the Income‑tax Act which requires the setting off the losses of the previous year against income in order to reach the figure of net income. It is on this net income that the tax payable can be ascertained or assessed.

6. We are of the view that for the purposes of allowing export rebate the loss under section 24 need not have been set off. The view of the Appellate Tribunal that the appellant can claim the rebate on the entire income of Rs.3,38,527 if it is prepared to have that income subjected to tax during the year under consideration does not appear to be correct.

7. If one looks at the provisions of section 24 of the Income‑tax Act it is clear that the loss of a particular year can be carried forward to the next year. Under subsection (1) of section 24 an assessee has the privilege of getting his loss under any one of the heads mentioned under section 6 set off against income, profits or gains under any other heads of income for that year but if he chooses and does not want to take his loss set off under any other head then at his choice he can get the loss under one head, carried forward to the next year and thereafter, to other years to be set off under his income under that head only and therefore, in order to arrive at the. total income of a particular person it is not always necessary that the loss must be set off. Even in a case of loss in respect of speculative transactions it can be set off only against income from speculative transactions and not otherwise and, therefore, if a person has got an income from other business sources but he has got a loss in the speculative sector of his transactions then 'again his total income can be arrived at irrespective of the losses suffered by him.

8. In subsection (2‑c) of section 24 it has been provided, that notwithstanding anything contained in subsection (1) or (2) no loss shall be set off against income from export proceeds as specified in explanation 6 to subsection (1) of section

4. This subsection (2-c) was introduced by the provisions of section 8 of supplementary Finance Ordinance XVII of 1972 and come into effect from 11‑5‑1972. This also makes clear that the loss cannot be set off against income from export proceeds, in case so specified in explanation 6 to subsection (1) of section

4. And hence it cannot be stated that in every case loss is to be set off under section 24 before total income of a person is calculated. Consequently if the total income of an exporter or a manufacturer can be calculated without setting off the loss under section 24 then why cannot the total income of the applicant be calculated before the setting off loss for the purpose of allowing him the export rebate. We are not holding that the export income in this case' was covered by explanation 6 to subsection (1) of section 4 because we do not have the various particulars before us in this case to come to the conclusion that the case was covered by the said explanation. We have taken the same into consideration only to enumerate the different circumstances under which a loss need not always be set off before arriving at the total income.

9. The consideration whether the assessee is paying income on a particular figure before getting the rebate for the same is of no consequence and irrelevant if a particular rebate is allowable ' to a person then he should be allowed that rebate.

10. The question posed before us in this case is, therefore, replied in the negative. M. B. A. Question answered in negative.